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What is the Dow Jones Industrial Average? The Dow Jones Industrial Average is usually just called the Dow. It’s an average of 30 of the most well...

What do you need to retire? Retirement - think: 401k, pension fund, IRA, roth IRA, etc. All of these savings socked away while you worked hard are...

Power of attorney refers to the authorization to conduct business on legal and financial matters on behalf of another party. So...choose wisely.

What is liquidity? Think: water. It's liquid. It can be squeezed into little, tiny spaces and infused into large spaces. A defining trait of liquid...

What's a yankee bond, and does it stick a feather in its cap and call it macaroni?

The Federal Open Market Committee's purpose is to manage financial outcomes through monetary policy.

Who is Warren Buffett, and how do we get him to give us a loan...?

What is Accrual Accounting? Accrual accounting is used to determine how well a company is doing by looking at the present and the future. It takes...

What is the Acid Test Ratio/Quick Ratio? The Acid Test Ratio is used to determine if a company can cover their liabilities in the short-term. It on...

What is the Fast Market Rule? The fast market rule is something that is used in the U.K. to keep the market under control when any sort of crash ha...

What is Arbitrage? Arbitrage is a trading strategy used to make risk-free money. The investor buys a security in one market and sells it in another...

If you go to an arcade and want to play coin-operated games, you will often exchange $1 bills for (4) quarters at a time. This is the equivalent of...

NAV isn't a cool new navigation app...it's how mutual fund shares are valued or priced at the end of each trading day.

What is amortization? Amortization tracks the decline in value of a contract or service, usually paid for in advance. You received $10,000 in advan...

What are Weighted Averages and Expected Values? Weighted averages are averages calculated to account for the number of changes that a variable, suc...

What's the SEC? Easy. Seals Eating Candy. Or maybe Silly Elephants Canoodling? We can never remember. Guess it's time to watch this video and refre...

Reg A is an exemption for the sale of securities. We wonder if it has any sweet steel drums in the background.

What are operating profits, net profits and gross profits? Profits for a company can be calculated several different ways depending on what metric...

How do some accountants “cook the books”? Cooking the books refers to accountants making company’s financials look much better than they are....

What is a balance sheet? A balance sheet is a financial document that public corporations are required to use. It shows their assets and liabilitie...

What is the Debt-to-Equity Ratio? Debt to Equity ratio is a metric used to determine the degree of financial leverage a company has. The formula is the quotient of Total Liabilities divided by Total Shareholder Equity. Different industries, especially ones that may be capital intensive, such as aircraft manufacturing, may traditionally have higher Debt to Equity ratios than those with relatively low overhead, such as IT. If a company’s growth and profits continue to increase, investors are willing to accept higher debt to equity ratios, such as with Netflix or Amazon. The underlying rationale is that the increased debt funds are being used to gain more market share and increase business in a positive manner that can justify the higher ratios.

What is inflation, and if we poke it with a pin, will it pop?

What is the process of a loan? Collateral. Do you have it? The bank lending you money wants to be sure that A) they get paid back, and B) they charge you enough rent or interest on the money you are borrowing such that it matches the risk the bank is taking.

What is the Dividend Discount Model? Valuation of stocks can take numerous forms. One way in which one perspective on undervalued stocks is determined is by use of the Dividend Discount Model. Applying this method involves calculating dividends and expected dividend growth rates from the cost of equity to determine a stock’s current value and whether or not the current market price is discounted or at a premium to that value calculation.

What is Debt-to-EBITDA? Debt to EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is a ratio that calculates Debt to net earnings before the accountants step in. EBITDA divided into debt gives a very quick estimate of a borrower’s ability to service debt principal as then interest can quickly be calculated and debt is deductible against taxes.

What is Dividend Coverage/the Dividend Payout Ratio? The Dividend Cover ratio is the factor by which a company can overpay its dividend when its net income is broken down by the dividend rate. The Dividend Payout ratio, conversely, is the dividend divided by net income. It is also used to factor with earnings in order to calculate earnings per share.

A profit center is whatever aspect of a company's business makes them the most dough, and should make up for the...not-so-profit-y centers.

What is an Approved List? Investors give approved lists to their fund managers (brokers). These lists tell the broker what investments they can make according to the investor’s financial goals.

What is the price-to-earnings ratio? It's the price of the stock divided by its earnings. Stock price: $14; earnings: $1. The P-E ratio then is 14.

What is net worth? You own $100,000,000 worth of Coke stock. That's the good news. Unfortunately, you also have $90,000,000 in debt. Your net worth is $10,000,000.

How does depreciation affect taxes? Depreciation accounts for a company’s assets losing their value over time. Companies are able to factor this in when calculating their taxable income, which leads to them paying less in taxes.

What is planned obsolescence? Planned obsolescence is the idea that products will need to be replaced. Companies strategize and plan ahead for this, i.e. they intentionally put out product that will deteriorate, so customers will need to purchase replacements. Technology is probably the most recognizable arena for planned obsolescence; people replace their cell phones every few years, and the new cell phones have cooler abilities than the old ones, hopefully.

Double declining balance sheet depreciation is a structure of formula under which companies assess the depreciating value of an asset that loses value.

When assessing the amount of profitability in a company’s various services and/or products, the contribution margin is a metric that is relied upon for calculation purposes. As a formula, it is a simple Sales minus Variable Costs equation. It is an important tool for gauging pricing. Companies that may be vulnerable due to an over reliance on 1-2 highly profitable products can find themselves in a cash crunch if one of the Variable Costs suddenly becomes more expensive and the company has a cap on how high in can raise prices without losing competitiveness with its rivals. A manager’s ability to reduce Variable Costs will increase the contribution margin and hopefully allow for increases in sales, and commensurate incentive bonuses.

What is the 1934 Securities Exchange Act? The 1934 Securities Exchange Act brought about the SEC, or the Securities Exchange Commission. This act, and the SEC, monitor and govern all realms of the financial world to ensure fair practice by all parties involved.

Terminal value is the end value of...something. In finance, it usually refers to the cash flow of a company that is sold, and that flow...stops flowing.

What is Asymmetric Information? The idea of asymmetric information applies to basically all transactions. It exists in the financial world because knowledge and information is not equal; advisors know more about investments than their clients do, and that’s why they get hired. It also refers to the party selling having more knowledge than the party buying, or (less common) vice versa (because if someone is selling something they should be knowledgeable about it).

What is the Securities Act of 1933? Signed by President Franklin Roosevelt, the Securities Act of 1933 was the first legislation to regulate the stock market. Instituted in reaction to the Crash of 1929, the Act of 1933 outlined financial disclosure rules and registration mandates for public companies with the SEC, subsequently formed in 1934 to enforce the Act of 1933. The rule attempted to inject financial transparency into the markets so investors not privy to inside information could get hoodwinked.

What does “Boilerplate” mean? The term boilerplate is used to describe documents or methods completed or used in the most basic and vanilla sense. Sometimes the use of the term is meant to be kind of a dis to whoever completed the document; other times it’s just used to describe a simpler way of doing things.

A profit-sharing plan is when you share all your profits with Shmoop. No, really. Don't hit play. Just trust us and send us money.